The IPO Risk-Factor in the Market

NEW YORK (TheStreet) -Plaguing the markets--and hedge fund performance as well--year to date has been the bloodbath in the momentum names--particularly names with no earnings. Think names like Tableau (DATA) and ChannelAdvisor (ECOM) which both just reported and are moving in different directions today.

One thesis regarding the pain in these names is the simple law of supply and demand. Simply put, there is just too much supply. We are seeing initial public offerings that are popping big time in their first day but then falling significantly aftermarket as the result of lofty valuations, lockup expirations and lackluster results. Look at Twitter (TWTR) which priced at $26 back in November and rose 72% its first day of trading. The stock has fallen to aftermarket lows at $33, but with lockups expiring for investors with a low cost basis, and the company not impressing when it comes to key metrics (Monthly Active Users) the stock has been killed.

To understand a bit more of the bloodbath caused by recent IPOs, I took a look at the tech IPOs, particularly related to Cloud or Software-as-a-Service (SaaS), to see just how dismal the performance has been in the aftermarket.

Let's look at the stats for this year's IPO as of the end of last week in the tech space:

1) Castlight Health (CSLT)--which provides on-demand software that helps self-insured employers control healthcare costs--priced its IPO on March 13th at $16/share. While it rose an astounding 148% in its first day of trading, it is down 62% in the aftermarket, dropping below even its pricing.

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